Daily Archives: October 19, 2003

The Productivity Scam

OK. Headline in the NY Times:

Overcapacity Stalls New Jobs

Can we just parse this for a second? “Overcapacity” means your production exceeds your sales, right? So what is the standard remedy for this situation?

Production as a percentage of total capacity fell precipitously in the aftermath of the last recession, which ended in 2001, and 23 months into the recovery, the upturn has still not come. On average, manufacturers are using less than 73 percent of their capacity.Struggling to get rid of this costly glut, many companies continue to shut plants and lay off the workers…

Right, Firing people. This is usually called “efficiency”, and especially since Jack “The Axe” Welch proved that a company’s stock price will rise in direct proportion to the number of people it fires, it has been the main tool by which business keeps its costs down. It doesn’t trim extreme, not to mention obscene, executive salaries; it doesn’t cut back on stock option giveaways or exorbitant executive bonuses; it doesn’t eliminate management perks or behind-the-back sweetheart deals for their buddies. They close plants and fire employees.

Now pair this with the unemployment number–close to 7%, the worst we’ve seen since the 80’s (the last time trickle-down was tried; connection anyone?)–and factor in a large number of unemployed who are no longer counted because they outran their skimpy unemployment insurance, an apparently even larger number of underemployed and part-time workers (also not counted), and the number of people sporadically employed as temps (a field that is growing again), and what have you got?

A potentially massive group of people who aren’t making enough money to buy much of anything.

Excuse me, but isn’t it possible that business has been paying attention to only one side of the equation while neglecting the other? What happens when you fire people? Their income vanishes. They stop buying things because they can’t afford them any more. Michael Moore once asked, “If these corporations keep laying people off even when they’re making a profit, who do they think is going to have enough money to buy their products?”

I’m admittedly not an economist, but this is simple common sense: If you fire the people who buy the things you make and they can’t any more, and then you lay off more people to make up for the sales you’re losing, aren’t you initiating a pretty vicious spiral here? And what happens to that spiral when you add in the loss of jobs to global outsourcing and pervasive automation?

We are creating, apparently deliberately, a Third-World society in a First World country, a society where only the lowest-paying jobs will survive the corporate disdain for the existence of “employees”, who are commonly seen as nothing more than an unnecessary expense to be dispensed with at the first opportunity using whatever means possible. It’s a short-sighted and ultimately self-destructive “remedy” that boosts profit in the short run but has the “overcapacity” to destroy the society in the long run.

Business people say, “Well, what do you want us to do? We’re not running a charity here.”

Well, maybe they should rethink that a little. Maybe running a bit of a charity is exactly what they need to do. Maybe the bottom-line isn’t everything. Maybe they should consider re-defining, for example, what percentage of net profit constitutes a “successful” business. In the 60’s (and for many years before that), a “successful” business was one whose profit was 7-10% or better; since the greed-filled 80’s, that number has more than doubled to 15%, and even that is considered the minimum acceptable level of profit. Reebok’s profit margin is in excess of 30%, GE’s is in the 20’s. These are the leaders, those are the goals.

When GM moved its plants overseas in the 80’s and 90’s, firing most of its American workers because, it claimed, sales were down and times were hard, it was making more than $$11 BILLION$$$ in profit. Not exactly on the verge of bankruptcy. It wasn’t moving to Mexico in response to losses–there weren’t any; they were moving to Mexico to improve their profits. Period. $$11 BILLION$$$ wasn’t considered enough.

Now the tens of thousands of people who were once gainfully employed in those American factories are either underemployed or temps, their incomes have been cut by as much as 4/5, and their middle-class lifestyle–the backbone of American sales since the end of WWII–has vanished. Those jobs will never come back, so they say, and the underpaid and underemployed are no longer a factor to be considered in marketing. They’ve been written off, permanent casualties of the lust for greater profit margins.

Now imagine what would have happened if GM had instead simply accepted, say, a mere $$8 BILLION$$ as a reasonable profit and preferable to the destruction of whole communities. Most–if not all–of those fired workers would have kept their jobs; the suicides, alcoholism and drug addiction that were the result of months and years of unemployment would have been averted; and–had this attitude been wide-spread enough–very likely the recessions of the last 20 years would never have happened.

Isn’t the human cost worth considering in their calculations? Isn’t the avoidance of unnecessary displacement, pain, and desperation worth anything? Don’t corporations have some responsibilities to the society that nurtured them?

Just asking.